Las Vegas homebuilders are sounding more optimistic about the new-home market after a second consecutive solid month of sales after rising interest rates caused sales to slump during the second half of 2022.
After March saw the highest monthly net sales (sales minus cancellations) in a year with 1,124, April saw 980 net sales, according to Las Vegas-based Home Builders Research, which referred to it as “another solid month” in its latest newsletter to homebuilders.
In one positive, there were 269 net sales for the week ending April 23, the highest number since there were 329 sales in February 2022, more than a year ago.
That’s quite a jump from the fourth quarter of 2022 when there was only one week when there were greater than 100 net sales, said Home Builders Research President Andrew Smith.
The net sales during March and April are more reflective of the Las Vegas new-home market in 2021.
The marketplace has been impacted by 30-year fixed mortgage rates that were below 3 percent in the fall of 2021 and grew throughout 2022 to surpass 7 percent.
They were just above 7 percent this week as buyers are starting to adjust to where the interest rates are.
“A lot of people panicked in the middle of last year, me included, over the increase in interest rates,” said Nat Hodgson, CEO of the Southern Nevada Home Builders Association, who spoke on a housing panel at the May NAIOP Southern Nevada breakfast meeting. “I can tell you we had a record first part of (2022) and a (bad) end of the year. We started off pretty good this year. Our sweet spot is about 11,000 to 12,000 homes a year, and we are on track for about 11,500.”
Smith said cancellation rates have remained in the low-to-mid teens, which he called normal. Buyer traffic in new home sales offices was down from March, but is in line with April 2019.
“Builders have been converting that traffic into signed contracts at nearly a 7 percent clip thus far in 2023, up from 6 percent in 2022,” Smith said. “Historically, 4 or 5 percent has been normal in Southern Nevada.”
While base asking prices have been slowly rising over the past couple of months for some builders, Smith said that during the last 12 months the overall base asking price has fallen 6 percent. The average square footage of actively selling plans has dropped less than 1 percent while the average price per square foot fell 6 percent, Smith said.
Since the start of 2023, DR Horton has had the highest average price per square foot increase at 3.8 percent, while Woodside Homes had the biggest decrease at 8.5 percent, Smith said. The remaining builders reported a 0.3 percent. decrease.
Nearly half of all new home sales in 2023 have occurred in communities with an average base asking price in the $400,000s, Smith said.
The overall new home median closing price of $471,666 was up about $8,000 in April compared to March but down 0.5 percent from April 2022.
“The part that makes me nervous is cost (to build homes),” Hodgson said. “If anybody tells me they are waiting for the right time to buy for prices to go lower, you missed it last year. Everything that’s in front of us is going up.”
The northwest and southwest valleys continued to grow their market share with 30 percent of net sales in the northwest in 2023, up from 27 percent in 2022. The southwest valley saw a 28 percent market share, up from 22 percent in 2022. Henderson had a 22 percent market share, the same as 2022.
North Las Vegas continued its decline by falling to 10 percent market share, down from 17 percent in 2022. It was 25 percent in 2021.
That could change in North Las Vegas as Smith reported DR Horton has opened for sale three product lines in the Villages of Tule Springs. It was among 19 new communities opening for sale in April bringing 1,930 lots to the market, Smith said.
During the NAIOP event, Hodgson told the development community that homebuilders stopped new construction of homes at the end of last year with the reduced demand from the higher interest rates, but the need for housing continues.
“The migration hasn’t stopped,” Hodgson said. “The net migration of people is happening at four per hour. I don’t know where they are staying. They are coming out of the woodwork. We are not building enough housing.”
Scott Bleazard, vice president of land acquisition for KB Home, said demand remains “enormous” in Las Vegas. He compared it to Black Friday, the day after Thanksgiving when shoppers run through the doors of the mall when it opens, except the present they want may be unavailable or unaffordable. KB is buying down interest rates, and smart buyers are buying today and refinancing in two to three years, he said.
“They are lined up at every single one of our communities but with interest rates where they are at, many don’t qualify,” Bleazard said. “We have millennials that have come off the bench and decided they are going to become adults and buy homes. We have baby boomers that are selling their home of 30 years and want to buy a new and more efficient home.”
Land availability continues to be an issue for builders as they fret among the federal government authorizing more development on federal land that would be made available for sale.
“The housing market is better, no question,” said George Garcia, founder of G.C. Garcia Inc, a consultant who works with builders getting entitlements from local governments.
Garcia said that the master plans have a lot of land tied up for future development but it’s difficult to find 100 acres to build housing projects outside of those communities. It’s timely, expensive and inefficient and makes it harder to deal with affordability, which is a growing concern.
“While we are competitive compared to California pricing, our market has to be competitive with Salt Lake and Arizona,” Garcia said.